Gold GOLD PRO WEEKLY, March 23 - 27, 2020

Sive Morten

Special Consultant to the FPA
Messages
13,541
Fundamentals

Today guys we put fundamental background in our FX weekly research, which is actually the same for the gold market. The stage where market stands right now calls as "run into USD". Gold market works as a good indicator of this stage. As traders talk on the market -

“Foreign borrowers with $12 trillion of dollar-denominated debt worldwide are hoarding as many dollars as they can in order to be able to service their debts,” said Mathieu Savary, Strategist at BCA Research. (At) some point, there will be enough dollar supply to calm the markets. Gold prices are an indication that we are not there yet.”

It means that gold should stop dropping when this process will come to an end. In current turmoil there is no reasons for drop of a precious metals. Rates are tend to zero and there is no difference whether you keep bonds or gold as no interest is generated on the notional amount. So we treat that gold drop is temporal and just a retracement on long-term time frame. It makes look it like reversal on daily chart.

Gold dropped as much as 3.6% on Wednesday as investors dumped precious metals in favour of cash after additional stimulus measures by the United States failed
to calm markets hit by mounting fears over the economic downside from the coronavirus.

"Gold continues to suffer from risk-off panics in the market, trading back below $1,500 level as S&P futures gave up stimulus-driven gains," said Tai Wong, head of base and precious metals derivatives trading at BMO. "Liquidity here, as in most markets, is deeply compromised and we expect to see continuing volatility, mood-driven swings."

Wall Street's main indexes slumped and oil prices continued to slide as investors' appetite for riskier assets remained weak on growing signs of coronavirus damage to the global economy. The U.S. Federal Reserve on Tuesday said it would reinstate a funding facility used during the 2008 financial crisis to get credit directly to businesses and households on fears of a liquidity crunch due to the virus.

On Wednesday, the Trump administration asked Congress to approve $500 billion in cash payments to taxpayers in two rounds that would start April 6.

"Gold will remain volatile over the next few sessions as investors await to see if the Trump administration is unable to quickly pass its massive stimulus plan," said Edward Moya, a senior market analyst at broker OANDA, in a note. "If we see a repeat of the financial crisis when Congress was ineffective in acting swiftly, the scramble for cash will continue."

Gold prices have plummeted more than 12% or over $200 since surging past $1,700 per ounce last week as investors unloaded bullion in exchange for cash and to meet margin calls.

The same story was on Thursday, when gold dropped 1% more. "Clearly gold's safe-haven status has not been held up," said David Meger, director of metals trading at High Ridge Futures. "Players are moving towards cash."

"Also, we have seen an extremely strong move in the dollar over the course of the last several sessions. As we do see more central banks around the world act in regards to coronavirus, we do see the dollar is the flight to safety."


The dollar notched a fresh three-year high as demand stayed strong despite the recent burst of liquidity injection operations undertaken by central banks around the world.
"The world marketplace has seen confirmation that the greenback is still king when times get really tough. The big grab for greenbacks is perpetuating dislocations in the financial markets," Kitco Metals senior analyst Jim Wyckoff said in a note.

Investors shed riskier assets as another round of sweeping emergency action from policymakers failed to convince panic-stricken stock markets.

"With all the extra stimulus from governments and central banks out there, it's been a wild ride in debt markets recently, further feeding the frenzy in precious metal markets," OANDA analyst Craig Erlam said in a note.

Official U.S. data showed the number of Americans filing for unemployment benefits surged last week to their highest level since 2017 in the first indication of the outbreak's toll on employment.

Physical demand for gold jumped this week in Singapore as buyers took advantage of a recent slide in prices after investors dumped the metal to raise cash, while discounts in India narrowed despite closures due to the coronavirus outbreak. In Singapore, premiums rose to $0.70-$0.80 an ounce versus last week’s $0.50-$0.60.

“Bullion sales went through the roof,” Silver Bullion sales manager Vincent Tie said. “Gold demand is still high, possibly fuelled by the high chance of recession brought on by COVID-19 and also interest rates cut back to zero by the U.S. Federal Reserve.”

Spot gold prices have fallen 14% from a more than 7-year high of $1,702.56 an ounce hit earlier this month as the rapid spread of virus triggered panic and sparked a wide sell-off in assets. But that has made bullion, which normally acts as a safe haven in times of crisis, attractive to some.

“The overall volatility has led to a huge surge in demand for physical precious metals ... it has been the unfolding global financial crisis and the rush to safe haven tangible precious metals in light of this crisis,” said Ronan Manly, precious metals analyst at BullionStar Singapore.

In India, discounts narrowed to $6 an ounce over official domestic prices this week, from last week’s discount of $33. The domestic price includes a 12.5% import tax and 3% sales tax.

“Prices are becoming attractive. Jewellers are making small purchases, but retail demand is still subdued,” said a Mumbai-based dealer with a bullion importing bank.

Indian gold futures were trading around 40,700 rupees per 10 grams on Friday, having hit a record high of 44,961 rupees earlier this month.

“There is uncertainty over retail demand as jewellery shops in many parts of the country will remain closed at least next week due to the coronavirus outbreak,” said another Mumbai-based dealer with a private bank.

Meanwhile, the Bangladesh Jewellers Association lowered the prices of all types of gold, the first cut since September, citing uncertainty over the pandemic. The new rates, with the best quality gold priced at 60,362 taka ($710) per Bhori, or 11.664 grams, came into effect from Thursday.

In top consumer China, prices swung between discounts of as much as $17 an ounce and premiums of $5, while in Hong Kong, gold was sold at par with the benchmark up to a premium of $1 an ounce. “Physical gold demand remains soft, some bargain hunters but not much,” Samson Li, Hong Kong-based precious metals analyst at Refinitiv GFMS, said.

Gold rebounded on Friday, rising as much as 3.1%, as a wave of fiscal and monetary stimulus by global central banks to counter the economic impact from
coronavirus spread halted investors lure for cash.

"Finally gold starting to stabilize here. As we are seeing monetary stimulus hit the market and it is providing little bit of bounce not just in gold also in equities," said Edward Moya, a senior market analyst at broker OANDA. "As we get beyond this initial risk-on day, we probably will start to see gold have a better outlook as the scramble for cash has exhausted and lot more investors remaining confident that it will maintain its safe-haven status."

"The surprising direct correlation between stock markets and the bullion price is continuing and is being helped by the greenback slowing down after yesterday's record," ActivTrades chief analyst Carlo Alberto De Casa said in a note. "The (gold) price now faces the first key static resistance, which is placed at $1,520. A climb above this level would create space for further rallies."


CFTC Data

Commitment of traders report also doesn't show panic sell-off, guys. As well as SPDR data, that has lost just 0.7% of total storage. It confirms that current sell-off is forced response, and doesn't reflect real drop of gold value. Net long position has decreased as well, but as you can see - just for 20K contracts:

1584794741806.png

Source: cftc.gov
Charting by Investing.com


Data shows that Open Interest has dropped for ~59K contracts net, or 10% on closing of Long positions. But it is interesting that Hedgers has closed a lot of longs as well. It could be treated as a sign that now there is no anticipation of big collapse on gold market.

Finally, Fathom tells that it is high probability on outstanding inflation slowdown across the world for relatively long-term period:

In all the turbulence of the past few weeks, it is inevitable that a number of significant price moves will have been overlooked. We have seen very little comment to date on the collapse in inflation breakevens, with the average implied rate of US CPI inflation over the next five years dropping more than 150 basis points to 0.2%. Even larger moves occurred in the wake of the collapse of Lehmans, only to be reversed albeit over more than a year.

1584795083517.png


So, in addition to fundamental view in our FX report, we could say, that gold drop has no relation to its real value and metal now is just a hostage of "dash for cash" havoc. This should not last too long and the first signs of exhausting of this process start to appear.

Technicals
Monthly


As market has spent the week in relatively tight range around major support area - performance barely impact on higher time frames. Thus we keep analysis here mostly the same.

On monthly chart current drop we treat as moderate retracement in long-term trend. Now market shows reaction on XOP and YPR1. Current monthly candle takes the shape of reversal one as it shows new top but close price stands below the lows of previous month. Market is not closed yet, situation could change, but, in general, it suggests deeper retracement. Actually the same story we have on EUR.

Previously we already set the level that should become first monthly target in a case of retracement. This is K-support and YPP around 1430-1445 area.

Here, on monthly we could talk again on bullish trend continuation if price climbs above 1680 top again. But meantime we consider scenario that already stands in place - downside retracement on background of "run-to-cash" process. Since we know that this is temporal effect - this is also good for us, because we have assurance that this is just a retracement.

Potentially we do not exclude two leg drop, right to YPS1 and 1300 area, depending on how situation will develop. In nearest term we intend to watch the response on strong K-support and YPP area.

gold_m_23_03_20.png


Weekly

Here we also have bearish reversal action as recent sell-off has become the greatest weekly drop since 1987 and engulfs almost 2 months of previous performance. Weekly trend has turned bearish and our divergence mostly worked out as gold creates the new local lows already. As we said last week - "potentially we could get H&S pattern". Now this is primary setup that we consider. Price has disrespected weekly K-area around 1530-1550, dropping directly to the monthly K-support. It means disrespected level to work as primary target, as price now could re-test it from the opposite side as it often happens. Besides, it matches to the top of potential right arm of our H&S pattern

gold_w_23_03_20.png


Daily

On daily chart it makes no sense to consider Oversold levels, as market just ignores them. But we should take in consideration Overbought. Overall upside bounce stands shy by far, but technical indicators shows that first resistance and our primary level is 1550 that theoretically market should reach. As we've mentioned in videos last week - H&S will be also major test. If pattern will work properly we will see 2-leg drop down in a way of huge AB=CD pattern, while rally above 1600 will smell like its failure and could mean major upside continuation.
Initially we focus on direct scenario.
gold_d_23_03_20.png


Intraday

On intraday chart we consider how response could happen and what shape it could take. On 4H chart market has formed multiple bullish grabbers and keeps triangle shape of price action. It makes us to consider upside AB=CD pattern, which also could be treated as "222" Sell - we talked about it already in our videos. Final upside action also could take a shape of butterfly "Sell". The upside action has mostly theoretical interest to us, because we do not intend to take long position right now and mostly focused on daily pattern. Still, as AB-CD as butterfly agrees with daily 3/8 1550 Fib resistance area:
gold_4h_23_03_20.png


Conclusion

Gold now is a victim of non-common driving factors when investors run into USD due forced measures. Unfortunately this action can't be predicted with certainty, when it will end. But we could keep an eye on good patterns that we have and use them as indicators of ongoing processes.

In longer-term view, we treat this action, as a retracement, even if gold will drop more to 1300 area and suggest strong rebound within a year or two.
 

Sive Morten

Special Consultant to the FPA
Messages
13,541
Greetings everybody,

So the first stage of our trading plan is completed fast - thanks to Fed liquidity measures. Market now stands at the area that is important for us by two reasons. First is - this is an area where we could consider short entry, second - this is indicator to us. Because if market will break above it - it means that we're in long-term upside trend continuation and should be ready for new top on gold market.

Meantime, we're watching for reaction, as gold stands at 3/8-5/8 resistance range and at daily Overbought. Tod-tom we also should keep an eye on possible bearish grabbers here:
gold_d_24_03_20.png


On 4H chart market also stands at former neckline resistance and disrespected 1550 K-support, reaching of our AB=CD target:
gold_4h_24_03_20.png


Still, upside action looks strong i would consider higher standing targets for short entry. In particular - we could focus on this butterfly "Sell". Now price stands at 1.27 target, while we could focus on 1.618 around 1613, which agrees with daily 5/8 Fib level. It increases chances of at least minor pullback that makes short entry relatively safe there:
gold_1h_24_03_20.png


That's being said - bears watch for 1613 for short entry with breakeven stop as soon as possible, while bulls have to wait if this level will be broken.
 

minimax

1st Lieutenant
Messages
1,456
Peter Schiff predicted DJI30/Gold ratio 1:1 but he said he could not tell the prices, so it can be 20.000:20.000 or more (30.000:30.000) or less (10.000:10.000). He named this money printing as QE Infinity. I have a feeling, Gold&Silver started their paths toward very high prices and only question is when indeces will start falling and how deep and when we will meet 1:1 ratio.
 

Tryingtrader

Sergeant
Messages
174
I think this QE infinity is the start of this new money system MMT (Modern Monetary Theory), a system where governments can print as much money as they like to fund whatever they want. If inflation gets to be too much then they increase sales tax to slow it down. The destination of all this is one humungus explosion of the entire monetary system... as witnessed in Weirmark Germany and Zimbabwe. How sad it has come to this!
 

minimax

1st Lieutenant
Messages
1,456
I think this QE infinity is the start of this new money system MMT (Modern Monetary Theory), a system where governments can print as much money as they like to fund whatever they want. If inflation gets to be too much then they increase sales tax to slow it down. The destination of all this is one humungus explosion of the entire monetary system... as witnessed in Weirmark Germany and Zimbabwe. How sad it has come to this!
To me at 1st glance this MMT does not look so bad but implementation needs right questions and answers, especially about control & freedom.
 

Tryingtrader

Sergeant
Messages
174
I beg to disagree, I think it looks terrible. If the government is allowed to print as much money as it likes, what then is money really worth? And as the only thing most people have to sell is their time in exchange for money, what is their time really worth if new money can be continually created out of thin air... for no effort at all. It really means time is valueless - and to correct this, money must be re-attached to gold... and gold has to be revalued - UP.
 

gpeter991

Private, 1st Class
Messages
34
@Guys, is this coiling arround 1600-1610 and drops by 30-40 USD spikes suggest drop/back to cash again?
 

minimax

1st Lieutenant
Messages
1,456
@Guys, is this coiling arround 1600-1610 and drops by 30-40 USD spikes suggest drop/back to cash again?
I expect unusual PAs (everything up?) on relevant instruments as indeces - metals, USD should gain, no matter what, this is my opinion...
 
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